OBJECTIVES

The financial status of traditional Chinese medicine (TCM) listed companies directly affects the development of the Chinese national pharmaceutical industry. This study aimed to evaluate current status of financial risks of TCM listed companies and analyse their determinants.

METHODS

This study used the data of A-share TCM listed companies in both Shanghai and Shenzhen Stock Exchange in China from 2007 to 2018. A total of 38 companies were included. We used the Altman Z-Score model to analyse the financial status of TCM listed companies. Then we used Z-Score as a financial performance indicator, firm’s age, cash holdings ratio, firm’s size, debt-to-assets ratio, tangibility ratio, debt to income ratio, book to market ratio, return on assets, operating income-sales ratio and liquidity as explanatory variable indicators to analyse the relationship between them by panel data regression method. Last we used the system-GMM to test the robustness of the model.

RESULTS

From 2007 to 2018, the Z-Score of mostly TCM listed companies were at a healthy level (Z>2.99). But in 2008, their financial conditions were not good with 10 companies were in the financial gray stage (10/38), and 4 companies had a Z-Score below 1.81, which was in financial risk. From the result of panel regression, we saw that the firm’s age (β=0.249 p<0.05), return on assets (β=10.34 p<0.01), and liquidity (β=1.073 p<0.01) had positive effects on the listed company's financial position, while the firm’s size (β=-1.680 p<0.05), book to market ratio (β=-1.728 p<0.05), and debt-to-assets ratio (β=-13.14 p<0.001) had negative impacts on financial conditions.

CONCLUSIONS

The overall financial situation of TCM listed companies were relatively good. Increasing the proportion of liquidity, market value of companies, reducing current liabilities and the accumulation of debt, and rationally using the company's assets are conducive to maintaining the companies in good financial situation.